Analysts pitch Redcape $500 million pub float

Brokers JPMorgan and Goldman Sachs have launched pub group
Hotel Property Investments
’ initial public offer, embarking on meetings with fund managers ahead of an expected $500 million deal later this month.

The two brokers kicked off HPI’s analyst roadshow on Thursday and pre-marketing research started to hit investors’ desks last night.

HPI owns 41 pub assets, seven bottle shops, and some minor ancillary specialities. It has been spun-out of the revived Redcape Hotel Group and derives 95 per cent of its income from Coles-run liquor outlets.

JPMorgan analysts valued HPI above $500 million in their report and said the company should come to market with a 7.8 per cent distribution yield. It reckons HPI investors could expect a 12 per cent internal rate of return and 7.4 per cent capitalisation rate – a measure of the total return on investment.

Inevitably, investors will be asked to compare HPI to ALE Property Group – the pub landlord to a portfolio of 87 Woolworths-backed pubs. While the similarities are obvious, some investors are likely to argue there is some difference, including the quality of the two portfolios. ALE shares have performed well over the past year, gathering 24 per cent to trade at a hefty 42 per cent premium to net assets.

HPI’s brokers are also expected to be at pains to point out the trust’s strength in Queensland. In the Sunshine state, home to 43 of HPI’s assets, each liquor licence allows the licensee to own one pub and three bottleshops in a nearby location, meaning Coles’ liquor strategy there is contingent upon its pub portfolio.

HPI is also expected to tell investors the typical Coles lease has contracted 4 per cent or two times CPI rental increases (whichever is lesser). Its average lease expiry is in nine years.

The trust is likely to target 40 per cent to 50 per cent gearing, which is slightly less than ALE’s 52 per cent.